Record cash flows and earning
Rio Tinto PLC
03 February 2005
Record cash flows and earnings
• Adjusted earnings* of $2,221 million were $839 million, or 61 per cent,
above 2003. Total cash flow from operations of $4,449 million was $963
million, or 28 per cent, above 2003. Net earnings of $2,813 million
compared with $1,508 million in 2003.
• The final dividend brings total dividends for the year to US 77 cents per
share, an increase of 20 per cent.
• Rio Tinto announces the intention to return up to $1.5 billion of capital
over two years through share buy back programmes.
• Markets for most of the Group's products were stronger. Earnings benefited
from new operations at Diavik (diamonds), Hail Creek (coking coal) and
Eastern Range (iron ore) and the expansion at Escondida (copper). First
shipments were made from the Comalco Alumina Refinery in November, three
months ahead of schedule.
• Opportunities were taken to divest non-core businesses generating proceeds
of over $1.5 billion.
• Major capital projects are progressing well. The major expansion of iron
ore capacity in Western Australia is now underpinned with long term
contracts. During the year, approval was given for an expansion of the
Hail Creek coking coal mine and further developments at Diavik.
Full year to 31 December 2004 2003 Change
(All dollars are US$ unless otherwise stated)
Gross turnover $14,135m $11,755m +20%
Cash flow from operations (incl. associate and JV dividends) $4,449m $3,486m +28%
Adjusted earnings* $2,221m $1,382m +61%
Net earnings * $2,813m $1,508m +87%
Adjusted earnings per share - US cents 161.0 100.3 +61%
Earnings per share - US cents 204.0 109.5 +86%
Dividends per share - US cents 77.0 64.0 +20%
*2004 adjusted earnings are stated excluding net exceptional items of $592
million comprising net gains on disposals of businesses of $913 million less
asset write downs and a provision for contract obligations of $321 million.
2003 adjusted earnings are stated excluding exceptional gains of $126 million on
disposals of businesses. Adjusted earnings and adjusted earnings per share
exclude exceptional items of such magnitude that their exclusion is necessary in
order that adjusted earnings fulfil their purpose of reflecting the underlying
performance of the business.
Chairman's comments
Rio Tinto's chairman Paul Skinner said, 'Our record earnings and cash flows
reflect not only the strength of our markets but also the strength of Rio
Tinto's asset base. The quality of our portfolio has been enhanced by the
investments that we have made over recent years. Coupled with the Board's
positive view of future growth prospects, this has given us the confidence to
increase the annual dividend by 20 per cent setting a new higher baseline for
the continuation of our progressive dividend policy.
'Our operating cash flow, combined with the proceeds from divestments, has
significantly strengthened our balance sheet. We are committed to efficient
capital management and, while our top priority remains value creation through
investment in profitable projects, we are now in a position where we can
comfortably fund our current investment programme and also consider returning
capital to shareholders. Depending on market conditions, we are intending to
return up to $1.5 billion of capital to shareholders over the next 2 years
through both on-market and off-market share buy-back programmes. This still
leaves us with the flexibility to take advantage of opportunities as and when
they arise.
'The recovery in the global economy, that gathered momentum in 2003, continued
in 2004. Strong demand in the US and Asia, particularly China, was reflected in
higher prices for most of our products. While the rate of growth in the major
OECD economies now appears to be slowing, current market conditions for the
majority of our products suggest that we will continue to see strong demand in
2005.
'The Board remains committed to Rio Tinto's strategy of investing in long life,
low cost, mining assets and to a value driven, disciplined approach to
investment decisions. This will ensure that our portfolio will continue to
deliver for shareholders in periods when markets do not show today's strength.'
Chief Executive's comments
Leigh Clifford, Rio Tinto's chief executive said, 'The operational challenges we
faced early in the year, in particular the effects of tropical cyclone Monty on
our iron ore operations and the 2003 material slippage at Grasberg, are now well
behind us and our operations performed well in the second half of the year.
'We have enhanced our portfolio both through divestments and investments.
Stronger markets have given us opportunities to divest non-core businesses,
generating proceeds of over $1.5 billion. Our new assets, including the Diavik
diamond mine and the Hail Creek coking coal mine, have performed ahead of
expectations and we have announced investments that will further enhance these
operations. The commissioning of the Comalco Alumina Refinery is going well and
first shipments took place in November, three months ahead of schedule. While
the primary focus is still to complete the commissioning of the first phase
successfully, studies on expansion options at the refinery are also proceeding.
The major expansion of the Western Australian iron ore operations is well
underway and is now largely underwritten by long term contracts and will enable
us to capitalise on the opportunities presented by a strong market. We
anticipate progressive commissioning during 2005.
'Strong markets give us opportunities but they also bring challenges. Our
global procurement programme does not insulate us completely from the cost
pressures that our industry experiences when markets are strong. However,
performance improvement remains a key focus within Rio Tinto and we are putting
greater emphasis on our global scale and specialist skills to ensure that we
achieve industry leading performance.
'Our long term commitment to exploration, which is a distinguishing feature of
Rio Tinto, continues to generate high quality opportunities. As a result of our
exploration programme, during 2004 we had five significant projects - in copper,
iron ore, nickel, gold and potash - move into the next stage of project
evaluation.'
Webcast
A webcast of the results presentation starting at 10-00 GMT (21-00 AEDT) on 3
February 2005 can be accessed through the Rio Tinto website (www.riotinto.com).
Commentary on the Group financial results
Adjusted earnings of $2,221 million were $839 million above 2003. The principal
factors explaining the movement are shown in the table below. Net earnings of
$2,813 million were $1,305 million above 2003.
Adjusted Net
earnings earnings
US$m US$m
2003 1,382 1,508
Prices 1,638
Exchange rates (247)
Inflation (118)
Grasberg (203)
slippage
Volumes 270
Energy costs (81)
Other costs (173)
Other (247)
839 839
Exceptional 466
items
2004 2,221 2,813
Adjusted earnings exclude the exceptional items which are described below.
Prices and exchange rates
Stronger markets resulted in higher prices for most of the Group's products.
Compared with 2003 average copper prices of 130c/lb were over 60 per cent
higher, average aluminium prices of 78c/lb were 20 per cent higher and average
gold prices of $409/oz were 13 per cent higher. Average molybdenum prices were
over two and a half times those of 2003.
The benchmark iron ore price increased 18.6 per cent. This resulted in
increased seaborne iron ore prices, mainly effective from 1 April 2004. The
seaborne thermal coal market also strengthened during the year with the benefit
of higher prices flowing through progressively in the second half of the year.
The US dollar weakened further against those currencies in which the Group
incurs the majority of its costs. Against the Australian dollar it averaged 12
per cent weaker. The effect of this and other currency movements on operating
costs reduced earnings by $326 million. The effect on earnings of the
revaluation of monetary items to period end exchange rates was also adverse,
although relative to a more substantial charge in 2003 it had a positive effect
of $61 million. Gains on currency hedges initiated by North, Ashton and Comalco
before 2000 increased earnings by $18 million compared with 2003.
Grasberg slippage
Production of copper and gold from the Freeport managed Grasberg mine was
significantly below 2003 as a consequence of the material slippage in the fourth
quarter of 2003. The effect of this on volumes and costs, net of insurance, was
to reduce 2004 earnings by $203 million. Production had returned to normal by
the fourth quarter of 2004.
Volumes
Excluding the effects of the Grasberg slippage, higher volumes, mainly from new
projects at Diavik (diamonds), Escondida (copper), Hail Creek (coking coal) and
West Angelas (iron ore) increased earnings by $270 million. As a result of
tropical cyclone Monty the volume growth from the Western Australian iron ore
operations was more modest than would otherwise have been the case.
Costs
Excluding the effect of inflation, higher energy costs and the Grasberg
slippage, the impact on earnings of increased costs was $173 million. Strong
markets create cyclical cost pressures within the industry. Higher prices for
skilled labour, steel, rubber, diesel, explosives and freight have all had an
effect on operating costs.
At Hamersley, costs were also higher due to increased material movement,
including pre-stripping, and higher maintenance activity. Tropical cyclone
Monty had a prolonged effect on the costs as well as volumes at Hamersley and
Robe. Adverse cost variances at Argyle were attributable largely to lower
production and at Palabora to lower volumes and increased depreciation following
the commissioning of the underground project.
Tax
Excluding exceptional items, the effective tax rate of 29 per cent was in line
with that of 2003.
Other
The absence of earnings from divested businesses reduced earnings by $122
million.
The East 1 Pushback project at Kennecott Utah Copper was approved in February
2005. This project is a higher value, lower capital intensive, but shorter life
option than the previous mine plan which was predicated on development of an
underground mine from 2013. Options to extend operations beyond 2017, including
further open pit and underground developments, will be fully studied over the
coming years but the results for 2004 include a one-off non-cash charge of $36
million due to the increase in the present value of environmental remediation
provisions.
The 2003 earnings of Rio Tinto Brasil included a benefit of $32 million
resulting from the part reversal of an impairment provision. The remaining
variance of $57 million includes a number of provision movements, none of which
is individually material.
Exceptional items
The 2004 exceptional items of $592 million include a net profit on disposals of
businesses ($913 million), a charge of $160 million relating to Colowyo and a
provision of $161 million for the write down of the carrying value of Palabora's
copper assets. The net profit on disposals of businesses is stated after tax
payable of $11 million. The write down of Palabora's copper assets is stated
after tax of $108 million and minority interests of $129 million.
A detailed review of the mine plan and projected cash flows of the Colowyo coal
business was completed in June 2004. This indicated that future operating and
development costs are substantially higher than previously estimated. As a
consequence of this, an exceptional charge was recorded in the first half of
2004 for the write down of Colowyo's fixed assets and recognition of related
contract obligations.
The 2003 exceptional items of $126 million relate to gains on the disposal of
Kaltim Prima Coal and Peak/Alumbrera. No tax was payable on these gains.
Cash flow
A record total cash flow from operations, including dividends from associates
and joint ventures, of $4,449 million, was 28 per cent above 2003. Net working
capital levels improved with days inventories and receivables falling despite a
significant increase in the level of activity.
Investment in the business continued. Capital expenditure and financial
investment of $2,085 million was $412 million above 2003. Purchases of
property, plant and equipment included the major expansion of iron ore capacity
in Western Australia, the construction of the Comalco Alumina Refinery, and the
purchase of West Antelope coal reserves by Kennecott Energy.
Disposals of interests in businesses generated proceeds of over $1.5 billion.
The largest components of this were the sale of shares in Freeport-McMoRan
Copper & Gold Inc and the sale of Rio Tinto's interest in the Morro do Ouro gold
mine in Brazil.
Second half adjusted earnings
Second half adjusted earnings were $235 million above the first half of 2004
principally as a result of higher selling prices. Volumes were also higher due
to the ramping up of production at Diavik, Hail Creek, the recovery of the
Western Australian iron ore operations from the first half effects of tropical
cyclone Monty and the return of Grasberg to normal production. The increase in
the charge for exploration and evaluation was biased towards the second half of
the year.
Balance sheet
Shareholders' funds increased by $2,547 million. Profits exceeded dividends
declared by $1,751 million and there was a write back of goodwill relating to
disposals of $228 million. Exchange rate movements increased shareholders funds
by $542 million.
As a result of the strong cash flow, both from operations and from disposals,
net debt fell from $5,646 million to $3,751 million. The ratio of net debt to
total capital fell to 21.7 per cent from 33.8 per cent at 31 December 2003.
Interest was covered 20 times (2003 11 times).
Dividends
Dividends are determined in US dollars. Rio Tinto plc dividends are declared
and paid in pounds sterling and Rio Tinto Limited dividends are declared and
paid in Australian dollars, converted at exchange rates applicable on Tuesday 1
February 2005. The interim and final dividends are summarised below.
2004 2003
Rio Tinto Group
Interim (US cents) 32.00 30.00
Final (US cents) 45.00 34.00
Total dividend (US cents) 77.00 64.00
Rio Tinto plc
Interim (pence) 17.54 18.45
Final (pence) 23.94 18.68
Total dividends (pence) 41.48 37.13
Rio Tinto Limited
Interim (Australian cents) 45.53 45.02
Final (Australian cents) 58.29 44.68
Total dividends (Australian cents) 103.82 89.70
Rio Tinto Limited shareholders will be paid dividends which will be fully
franked. The directors consider that there are sufficient franking credits
available for paying fully franked dividends for at least the next year.
The respective dividends will be paid on Friday 8 April 2005 to Rio Tinto plc
shareholders on the register at the close of business on Friday 25 February 2005
and to Rio Tinto Limited shareholders on the register at the close of business
on Tuesday 1 March 2005. The ex- dividend date for both Rio Tinto plc and Rio
Tinto Limited will be Wednesday 23 February 2005. Dividends will be paid to Rio
Tinto ADR holders on Monday 11 April 2005.
As usual, Rio Tinto will operate its Dividend Reinvestment Plans, details of
which can be obtained from the Company Secretaries' offices and from the Rio
Tinto website (www.riotinto.com). The last date for receipt of the election
notice for the Dividend Reinvestment Plans is Wednesday 16 March 2005.
Capital management
Rio Tinto is committed to maintaining an efficient balance sheet structure while
retaining sufficient flexibility to fulfil its overall strategic priority of
growing both organically and through acquisition where value enhancing
opportunities arise.
A series of acquisitions in 2000 and 2001, coupled with investment in a number
of greenfield and brownfield opportunities, have increased the capital base of
the Group and resultant free cash flow. This has put the Group in the position
of being able to rebase the level of the ordinary dividend from which it will
continue its progressive dividend policy.
The current strength of the Group's cash flow means that in addition to
comfortably funding the current planned investments, capital can be returned to
shareholders whilst maintaining the flexibility to take advantage of acquisition
and organic opportunities as and when they arise.
Subject to market conditions, Rio Tinto's intention therefore is to return up to
$1.5 billion of capital to shareholders during the course of 2005 and 2006.
At the 2005 Annual General Meetings, Rio Tinto will once again be seeking
shareholder approvals to renew its existing authority to make on-market
purchases of shares in Rio Tinto plc. While it is Rio Tinto's intention to
exercise this authority, the precise manner and timing of such purchases will be
determined by, amongst other things, prevailing market conditions.
In addition, Rio Tinto will also be seeking shareholder approval to make an
off-market purchase of shares of Rio Tinto Limited through a tender process
under which part of the buy-back price will be treated as a fully franked
dividend for Australian tax purposes. The off-market buy-back tender structure
enables Australian companies to buy back shares at a material discount to the
prevailing share price. This type of off-market buy-back is likely to be
attractive to a range of shareholders because of the treatment of the buy-back
proceeds under the Australian tax regime. However, the buy-back tender will
benefit all shareholders of the Group as the buy-back price would be at a
discount to Rio Tinto Limited's market price.
Broadly, Rio Tinto Limited is targeting to repurchase the equivalent of around
US$300 - 400 million (A$400-500 million) of capital under the buy-back tender
but the ultimate size of the buy-back will be dependent on shareholder demand
and market conditions at the time. The buy-back tender will be conditional on
Rio Tinto obtaining shareholder and other regulatory approvals. Subject to
receipt of these approvals, it is intended to implement the buy-back as early as
possible, subject to prevailing market conditions.
As in previous years, Rio Tinto will also be seeking shareholder approval at the
2005 AGMs to renew its existing authorities to buy back Rio Tinto Limited shares
on-market (after taking into account those bought back under the proposed
off-market tender offer) as well as those held (indirectly) by Rio Tinto plc.
Rio Tinto financial information by Business Unit (1)
US$ millions Rio Tinto Gross turnover (a) EBITDA (b) Net earnings (c)
interest
% 2004 2003 2004 2003 2004 2003
Iron Ore
Hamersley (inc. HIsmelt(R)) 100.0 1,625 1,329 800 711 447 424
Robe River 53.0 552 374 325 213 119 68
Iron Ore Company of Canada 58.7 428 442 55 47 3 7
2,605 2,145 1,180 971 569 499
Energy
Kennecott Energy 100.0 1,107 955 277 236 119 88
Rio Tinto Coal Australia 100.0 769 433 336 157 180 70
Kaltim Prima Coal (d) - 142 - 74 - 31
Coal & Allied 75.7 769 597 204 52 51 (24)
Rossing 68.6 124 86 8 (33) (4) (19)
ERA 68.4 174 131 70 58 19 11
2,943 2,344 895 544 365 157
Industrial Minerals 2,057 1,801 538 465 223 154
Aluminium (e) 2,411 1,936 720 488 334 200
Copper
Kennecott Utah Copper 100.0 1,113 722 496 230 293 88
Escondida 30.0 1,003 502 699 284 416 122
Freeport (f) 43 344 7 169 (4) 23
Grasberg joint venture (g) 153 397 102 225 38 104
Palabora 49.2 305 206 (20) 20 (21) 1
Kennecott Minerals 100.0 263 239 129 122 79 60
Rio Tinto Brasil (h) 108 139 31 48 1 48
Other (d) 167 176 91 51 54 (6)
3,155 2,725 1,535 1,149 856 440
Diamonds
Argyle 100.0 322 434 102 198 23 72
Diavik 60.0 420 122 316 106 145 41
Murowa 78.0 2 - 1 - 1 -
744 556 419 304 169 113
Other operations 145 184 83 77 28 21
Other items 75 64 (221) (233) (114) (45)
Exploration and evaluation (187) (127) (152) (98)
Net interest (57) (59)
Adjusted EBITDA & earnings 4,962 3,638 2,221 1,382
Exceptional items 771 126 592 126
Total 14,135 11,755 5,733 3,764 2,813 1,508
Reconciliation to the profit and loss account
Profit on ordinary activities before interest 3,850 2,392
Depreciation and amortisation in subsidiaries 1,204 1,006
Asset write downs relating to subsidiaries & JVs 408 -
Depreciation and amortisation in JVs and associates 271 366
5,733 3,764
References above are to notes on page 27
Rio Tinto financial information by Business Unit (2)
US$ millions Rio Tinto Capital Depreciation & Operating assets
interest Expenditure (i) amortisation (j) (k)
31 Dec 31 Dec
% 2004 2003 2004 2003 2004 2003
Iron Ore
Hamersley (inc. HIsmelt(R)) 100.0 745 298 161 110 2,211 1,543
Robe River 53.0 109 75 93 74 1,910 1,852
Iron Ore Company of Canada 58.7 51 37 41 29 530 489
905 410 295 213 4,651 3,884
Energy
Kennecott Energy 100.0 169 168 118 105 447 561
Rio Tinto Coal Australia 100.0 50 92 73 52 661 649
Kaltim Prima Coal (d) - 2 - 16 - -
Coal & Allied 75.7 15 34 94 91 717 787
Rossing 68.6 2 4 15 7 40 46
ERA 68.4 7 5 35 30 179 178
243 305 335 301 2,044 2,221
Industrial Minerals 248 139 176 172 2,170 2,038
Aluminium (e) 449 436 202 169 3,683 3,258
Copper
Kennecott Utah Copper 100.0 105 83 90 92 1,243 1,277
Escondida 30.0 113 45 54 79 624 492
Freeport (f) - 33 3 54 - 144
Grasberg joint venture (g) 35 60 43 43 428 417
Palabora 49.2 30 66 41 17 358 426
Kennecott Minerals 100.0 36 9 27 42 166 136
Rio Tinto Brasil (h) 18 19 6 (18) 50 138
Other (d) 42 63 23 52 190 335
379 378 287 361 3,059 3,365
Diamonds
Argyle 100.0 89 22 58 76 666 600
Diavik 60.0 49 78 67 34 599 674
Murowa 78.0 14 - - - 16 -
152 100 125 110 1,281 1,274
Other operations 10 4 45 37 89 98
Other items 5 17 418 9 (642) (455)
Less joint ventures and associates (234) (181) (271) (366) - -
Total 2,157 1,608 1,612 1,006 16,335 15,683
Less net debt (3,751) (5,646)
Net assets 12,584 10,037
References above are to notes on page 27
Review of Operations
Comparison of adjusted earnings
2004 adjusted earnings of $2,221 million were $839 million above the adjusted
earnings of 2003. The table below shows the difference by product group. All
financial amounts in the tables below are US$ millions unless indicated
otherwise.
$ m
2003 adjusted earnings 1,382
Iron Ore 70
Energy 208
Industrial Minerals 69
Aluminium 134
Copper 416
Diamonds 56
Other operations 7
Exploration and evaluation (54)
Interest 2
Other (69)
2004 adjusted earnings 2,221
Iron Ore
2004 2003 Change
Iron ore production (million tonnes) 106.5 101.5 +5%
Turnover 2,605 2,145 +21%
Net earnings 569 499 +14%
EBITDA 1,180 971 +22%
Capital expenditure 905 410
Market Conditions
Global demand for iron ore continued to be extremely strong throughout 2004.
Iron ore imports into China increased by over 40 per cent but demand was also
strong in the rest of Asia and North America.
Reflecting the strength of the market, 18.6 per cent price increases were
achieved for fiscal year 2004 following the nine per cent price increases agreed
in 2003.
New long term supply agreements with leading Chinese and Japanese steel mills
announced during the year underpin the current phase of Rio Tinto's expansion of
port, rail and mine capacity that is on schedule for completion at the end of
2005. Agreements covering closer co-operation between Robe and Hamersley were
signed in the fourth quarter of 2004 which will benefit both operations.
Hamersley Iron
Net earnings of $447 million were $23 million above 2003. First half production
was severely disrupted by tropical cyclone Monty which hit the Pilbara in early
March. Mines and port facilities were closed and the subsequent flooding also
affected mining operations and transport infrastructure. Despite this
disruption, Hamersley achieved record production and shipments for the year.
The new Eastern Range mine was opened in April and shipped its first product in
the second quarter and the expanded Yandi mine began producing at a 24 million
tonne rate in the third quarter. An expansion of Yandi to 36 million tonnes was
approved late in 2003, and construction began in 2004. The project is on track
for completion in the first half of 2005.
Material movement and maintenance activity increased during the period, as the
business prepared for a significant increase in production from the end of 2005.
Hamersley's net earnings include a net loss of $11 million (2003 $2 million) for
HIsmelt(R) due to pre-production marketing and administration costs. As a
result of various contractor labour disputes, the start-up of the plant is now
expected in the first half of 2005.
Robe River
Net earnings of $119 million were $51 million above 2003. The West Angelas mine
reached its design capacity of 20 million tonnes per annum in the first quarter,
two years ahead of schedule and, except for the fourth quarter when production
was affected by the timing of maintenance in advance of increased production in
2005, operated at this capacity for the remainder of the year. An expansion to
25 million tonnes per annum was approved late in 2003. Construction began in
2004 and is on track for completion in mid-2005.
First half production from Pannawonica was also affected by flooding associated
with tropical cyclone Monty. Production levels returned to normal relatively
quickly but product quality was affected for a prolonged period.
Iron Ore Company of Canada
Net earnings of $3 million were $4 million below 2003. The effects of higher
iron ore prices were all but negated by the interruption to production due to a
three month industrial dispute over a new labour contract. As a result of the
dispute, there was minimal production in the third quarter, but operations
returned to normal progressively during the fourth quarter. The new collective
agreement reduces the number of job classifications, introduces individual
performance evaluations for all employees and provides the basis for a
significant improvement in productivity.
Energy
2004 2003 Change
Production Coal (million tonnes)
Hard coking coal 6.8 2.3 +196%
Other Australian/Indonesian 32.9 38.3 -14%
US 117.7 108.2 +9%
Uranium (tonnes) 5,974 5,158 +16%
Turnover 2,943 2,344 +26%
Net earnings 365 157 +132%
EBITDA 895 544 +65%
Capital expenditure 243 305
US Coal - Kennecott Energy
Net earnings of $119 million were $31 million above the net earnings of 2003.
Production was nine per cent higher than in 2003 as a result of higher demand
for low sulphur coal. Higher volumes, higher realised prices and a lower tax
charge all contributed to the improved result. Kennecott Energy also made
progress in implementing initiatives leading to cost reductions, productivity
improvements, reduced capital requirements and marketing benefits. These
benefits were partially offset by higher fuel prices.
Kennecott Energy successfully bid for an additional 177 million tonnes of
in-situ coal reserves at West Antelope at a cost of $146 million.
Asia Pacific Thermal Coal Markets
The markets for thermal coal that had begun to strengthen late in 2003 remained
strong throughout 2004 and the benefits of rising prices flowed through
progressively in the second half of the year. The market for coking coal, into
which Rio Tinto introduced production from the new Hail Creek mine, was also
strong. Rio Tinto's mines generally operated at the capacity permitted by rail
and port infrastructure in New South Wales and Queensland.
Rio Tinto Coal Australia (formerly Pacific Coal)
Net earnings of $180 million were $110 million above 2003. Production from the
new Hail Creek mine ramped up to capacity well ahead of schedule. Total
production in 2004 was 5.1 million tonnes and an expansion in capacity to eight
million tonnes was approved in July 2004. The proportion of coking coal from
the Kestrel mine increased during 2004.
In the first quarter of the year shipments from Blair Athol were constrained for
a period of seven weeks due to a reclaimer failure at the independently managed
Dalrymple Bay Coal Terminal (DBCT). Congestion at DBCT again constrained
shipments towards the end of the year.
Coal & Allied
Net earnings of $51 million compared with a loss of $24 million in 2003. The
port and rail congestion that had affected sales through the port of Newcastle
(NSW) in 2003 and the first quarter of 2004 eased during the second quarter
following the approval of a port rationing agreement by the Australian
Competition and Consumer Commission in mid-March.
Coal & Allied was brought under unified management with Rio Tinto Coal Australia
with effect from 1 February 2004. In addition, the Mount Thorley and Warkworth
mines have been managed as one operation since late January.
Rossing
A net loss of $4 million compares with a net loss of $19 million in 2003. 2004
earnings benefited from lower inventory values following a stock write down in
the second half of 2003. The effects of a stronger uranium market were offset
by the effects of the stronger Namibian dollar. Work continued on studying
opportunities to extend the life of the operation beyond that of the existing
pit.
Energy Resources of Australia
Net earnings of $19 million were $8 million above 2003 due to higher uranium
prices and a lower tax charge.
Industrial Minerals
2004 2003 Change
Production Borates (000 tonnes) 565 559 +1%
Titanium dioxide (000 tonnes) 1,192 1,192 0%
Salt (000 tonnes) 4,792 4,633 +3%
Talc (000 tonnes) 1,443 1,357 +6%
Turnover 2,057 1,801 +14%
Net earnings Rio Tinto Borax 94 80 +18%
Rio Tinto Iron & Titanium 95 47 +102%
Dampier Salt 10 10 0%
Luzenac 24 17 +41%
223 154 +45%
EBITDA 538 465 +16%
Capital expenditure 248 139
Rio Tinto Borax
Net earnings of $94 million were $14 million higher than 2003. Production of
borates was slightly above 2003 reflecting improvement in some end use markets.
The business benefited from continuing strength in the US housing sector and
demand for boric acid remained strong. The expansion of boric acid capacity
remains on schedule for completion in the first half of 2005. Further expansion
of boric acid capacity has been approved and is in the engineering phase with
construction to be completed by the end of 2006.
Rio Tinto Iron & Titanium
Net earnings of $95 million were $48 million above 2003, which included a charge
associated with the write down of a customer receivable which was partially
reversed in 2004.
The demand for high-grade chloride feedstocks, like QIT's UGS product, remained
very strong. Conventional chloride and sulphate slags remained in general
oversupply, but with some short-term tightness in chloride slag caused by
producer production difficulties. Rio Tinto Iron & Titanium benefited from the
strong markets for its iron, steel, rutile and zircon products. Production of
conventional slags remained below capacity whereas production of the high purity
upgraded slag (UGS) was at capacity. Expansion of the UGS plant to 325,000
tonnes per annum is on schedule for start up in early 2005.
Dampier Salt
Net earnings of $10 million were in line with 2003 with higher sales volumes
offsetting the effects of the stronger Australian dollar.
Luzenac
Net earnings of $24 million were $7 million above 2003. The market for
automobile applications was strong on both sides of the Atlantic with Luzenac
products increasingly used in new models and applications. Sales volumes to the
paper sector in North America, Latin America and Asia also increased. 2003 net
earnings included one-off costs for restructure and site closure.
Aluminium
2004 2003 Change
Production Bauxite (000 tonnes) 12,828 12,316 +4%
Alumina (000 tonnes) 2,231 2,014 +11%
Aluminium (000 tonnes) 837 817 +2%
Turnover 2,411 1,936 +25%
Net earnings 334 200 +67%
EBITDA 720 488 +48%
Capital expenditure 449 436
All sites except Bell Bay achieved record production volumes in 2004.
Prices
The average aluminium price of 78c/lb was 20 per cent higher than the average
during 2003. The alumina market also strengthened with spot prices averaging
$372/tonne compared with $275/tonne in 2003. The effect of these and other
price movements was to increase earnings by $201 million compared to 2003.
Bauxite
Production of bauxite was four per cent above 2003, despite the sale of Boke in
June 2004. Following a first quarter affected by wet weather, production
increased during the year. The mine expansion component of the NeWeipa Project,
which takes Weipa capacity from 12 million tonnes per annum to 16.5 million
tonnes per annum, was completed in time to meet the bauxite requirements of the
new alumina refinery.
Alumina
QAL suffered an interruption to its power supply in October which reduced
production by about 85,000 tonnes (33,000 tonnes Rio Tinto share), but otherwise
enjoyed strong production for the balance of the year, reflecting high process
stability. The new CAR alumina refinery commenced production three months ahead
of schedule with first shipments in November.
Aluminium
Production at all smelters was strong except at Bell Bay where minor equipment
failure affected production in the middle of the year.
Copper
2004 2003 Change
Production Mined copper (000 tonnes) 753 867 -13%
Refined copper (000 tonnes) 333 349 -5%
Mined gold (000 oz) 1,164 2,207 -47%
Turnover 3,155 2,725 +16%
Net earnings 856 440 +95%
EBITDA 1,535 1,149 +34%
Capital expenditure 379 378
Kennecott Utah Copper
Net earnings of $293 million were $205 million above 2003 with earnings
benefiting from high copper, gold and molybdenum prices. By-product production
improved in the second half of the year following a period of about 18 months
when volumes were adversely affected by poor mineralogy.
A project to extend the life of the Bingham Canyon open pit was developed during
2004, and approved in February 2005. This project, the East 1 pushback, will
extend the life of the open pit to 2017. Capital expenditure on the project
will be $100 million for mine facilities, a concentrator upgrade and mobile
equipment and $70 million after 2008 for the relocation of the in pit crusher
and dewatering facilities. The East 1 pushback is a higher value, lower capital
intensive option than the previous mine plan which was predicated on development
of an underground mine from 2013. Mine development options from 2017 will be
reviewed in the context of the decision to proceed with the East 1 pushback, and
include various open pit and underground alternatives. A one off non-cash charge
of $36 million has been recorded in 2004 to reflect an increase in the present
value of provisions for environmental remediation costs, based on the assumption
that mining operations cease in 2017. Pending any extension of the assumed mine
life beyond 2017 there will be an increase in the annual depreciation charge
from 2005 of around $45 million.
Escondida
Net earnings of $416 million were $294 million above 2003 due mainly to higher
copper prices and higher production volumes. Full year production reflects the
return to the normal mine plan from the beginning of the year, the ramp-up of
the Laguna Seca concentrator and an increase in mill throughput rates due to
operational improvements.
Freeport and Grasberg Joint Venture
Net earnings of $34 million were $93 million below the net earnings in 2003.
Both copper and gold production at the Grasberg mine were severely disrupted as
a consequence of the material slippage in the fourth quarter of 2003. Freeport,
the manager of the Grasberg mine, resumed mining activities in the higher grade
areas of the open pit in the second quarter. Mill throughput and grades, and
hence production volumes, improved progressively during the year. Net earnings
include a $20 million benefit due to the insurance settlement relating to the
material slippage.
Rio Tinto sold its holding in Freeport-McMoRan Copper & Gold Inc. (FCX) to FCX
for net consideration of $882 million in March 2004. The sale of FCX shares has
no effect on the terms of the joint venture, nor the management of the Grasberg
mine. The profit on the sale of these shares is treated as an exceptional item
and is excluded from adjusted earnings.
Palabora
A net loss of $21 million compared with net earnings of $1 million in 2003. The
benefit of higher copper prices was partially offset by the strength of the
South African rand relative to the US dollar. Production from the underground
mine improved during the year but was constrained by poor fragmentation and the
performance of secondary breaking equipment. A review of the business was
finalised in the third quarter of 2004, as a result of which the workforce was
reduced by 13 per cent and the management levels by 20 per cent. These events
have triggered an assessment of the balance sheet value of Palabora's copper
assets, using long term copper prices, which has resulted in a provision for
asset impairment of $161 million after tax and outside shareholders interests.
This is excluded from adjusted earnings.
Kennecott Minerals
Net earnings of $79 million were $19 million above 2003 as both Cortez and
Greens Creek benefited from higher prices.
Other copper operations
Net earnings at Northparkes of $26 million compared with a loss of $10 million
in 2003. In addition to benefiting from higher copper and gold prices, ore
grades were higher than in 2003 with the successful completion and commissioning
of the new Lift 2 block cave in the second half of the year. Lift 2 is ramping
up ahead of schedule.
The sale of Rio Tinto's interests in Fortaleza, Somincor, Morro do Ouro and
Zinkgruvan were completed during 2004. The net gain on disposal is excluded
from adjusted earnings.
Diamonds
2004 2003 Change
Production Diamonds (000 carats)
Argyle 20,620 30,910 -33%
Diavik 4,545 2,300 +98%
Turnover 744 556 +34%
Net earnings 169 113 +50%
EBITDA 419 304 +38%
Capital expenditure 152 100
Diamond market
The market for rough diamonds was strong in 2004, resulting in price rises for
both the Argyle and Diavik productions. The decline in industry stockpiles of
rough diamonds combined with increased retail demand for diamond jewellery in
the US market contributed to the tight market conditions.
Diavik
Net earnings of $145 million were $104 million above 2003. Production ramped-up
during the year and the process plant comfortably exceeded design capacity on a
consistent basis. The construction of a new dike and funding for the further
study of the viability of underground mining, including the construction of an
exploratory decline, were approved in December 2004.
Argyle
Net earnings of $23 million were $49 million below 2003. Tight mining
conditions, as a result of the deepening open pit, limited mine production
during the first three quarters of the year. Ore processed therefore consisted
of lower grade ore from the open pit supplemented by ore from stockpiles.
Production returned to normal in the fourth quarter. The feasibility study on
the underground mine at Argyle is expected to be completed in the second half of
2005.
Other diamond operations
The construction of small scale operations was completed at Murowa and
production commenced in the fourth quarter of 2004.
Other Operations
2004 2003 Change
Production Gold (000 oz) 388 524 -26%
Turnover 145 184 -21%
Net earnings 28 21 +33%
EBITDA 83 77 +8%
Capital expenditure 10 4
Net earnings of $28 million were $7 million above 2003 with both Lihir and
Kelian benefiting from higher gold prices.
Exploration and evaluation
2004 2003 Change
Post tax expenditure 152 98 +55%
Evaluation work on the Sari Gunay (gold, Iran), Eagle (nickel, USA), Potasio
Rio Colorado (potash, Argentina) and Simandou (iron ore, Guinea) by the product
groups commenced during the year. The expenditure on evaluation therefore
increased in 2004. Placer Dome, the manager of the Cortez mine (Rio Tinto 40
per cent ), announced the initiation of a feasibility study at Cortez Hills.
The pre-feasibility study at Resolution (copper, USA) continued.
Exploration drilling continued on copper targets in Peru, Turkey, Alaska and
Utah. Diamond exploration continued in Canada, Botswana, India and Brazil.
Iron ore exploration continued in the Hamersley Basin (Western Australia) and in
west Africa. Exploration on coking coal opportunities continued in southern
Africa, Australia and Canada.
Capital Projects
The following major projects have recently been approved, are in construction or
were completed during the year.
Project Estimated Cost Status/Milestones
(100%)
Completed in 2004
Iron ore - Eastern Range mine (Rio Tinto 54%). $67 m Construction completed on time and the mine
Development of a new mine with a capacity of 10 was officially opened in April 2004.
million tonnes per annum. The mine services a
joint venture formed between Hamersley and
Shanghai Baosteel Corporation.
Aluminium - Comalco Alumina Refinery (Rio Tinto $750 m Operations have commenced and first shipments
100%). Construction in Queensland of a were made in November 2004, three months
greenfield alumina refinery with initial annual ahead of schedule.
capacity of 1.4 million tonnes but with options
to expand to 4.2 million tonnes.
Copper - Northparkes Lift 2 Expansion project $100 m Variable ground conditions and higher than
(Rio Tinto 80%). New 15,000 tonne per day expected rock stress caused a delay to the
block cave mine approximately 400 metres below project. The project cost increased from an
the existing underground operation. initial estimate of $76 million to $100
million. Production commenced in the second
half of 2004 with full ramp up in 2005.
Copper - Palabora Underground (Rio Tinto 49%). $465 m Construction is complete and the propagation
30,000 tonnes of ore per day block caving of the cave is proceeding well. However,
operation. fragmentation at this early stage of the cave
has impacted production at some of the
drawpoints.
Ongoing
Aluminium - NeWeipa. Expansion of Weipa (Rio $150 m The mine expansion project was completed on
Tinto 100%) bauxite production to 16.5 million time and within budget in 2004 to meet the
tonnes, and move to a two mine operation. bauxite requirements of CAR.
Iron Ore - HIsmelt(R) (Rio Tinto 60%) direct $200 m Construction is 99% complete. Commissioning
iron smelting technology. Construction of an has commenced and first production is now
800,000 tonne capacity plant at Kwinana, expected in the first half of 2005.
Western Australia.
Other - Project Daybreak (Rio Tinto 100%). Initial cash Land sales started in mid 2004 and will ramp
Development for mixed use of a 4,100 acre area requirement of up over a period of 5-6 years. To date
of land near Salt Lake City, Utah. $50 m builders have closed on over 300 lots.
Copper - Escondida Norte (Rio Tinto 30%). $400 m Project approved in June 2003. First
Satellite deposit will provide mill feed to production is expected in the fourth quarter
keep Escondida capacity above 1.2 million of 2005.
tonnes per annum to the end of 2008.
Iron ore - Expansion of Hamersley's (Rio Tinto $685 m Construction is 57% complete and remains on
100%) port capacity to 116 million tonnes per schedule for completion in late 2005.
annum.
Iron ore - Expansion by Robe River (Rio Tinto $200 m Construction began in June 2004 and is
53%) of rail capacity including completion of scheduled for completion by mid-2006.
dual tracking of 145 km mainline section.
Iron ore - Expansion of Yandicoogina mine (Rio $200 m Construction is 80% complete. Completion is
Tinto 100%) from 24 million tonnes per annum to scheduled for the first half of 2005.
36 million tonnes per annum.
Iron ore - Expansion of West Angelas mine (Rio $105 m Construction is 35% complete. Completion is
Tinto 53%) from 20 million tonnes per annum to expected for mid-2005.
25 million tonnes per annum.
Recently approved
Coking coal - Hail Creek (Rio Tinto 82%) $120 m Project approved in July 2004 with completion
Expansion of annual capacity from 6 million by the end of 2005. Capital costs are
tonnes to 8 million tonnes per annum. currently under review in light of cyclical
cost pressures in the industry.
Copper - Escondida sulphide leach (Rio Tinto $870 m The approval of the project was announced in
30%). The project will produce 180,000 tonnes April 2004 and production is expected to
per annum of copper cathode for more than 25 begin in the second half of 2006.
years.
Titanium dioxide - Expansion of Rio Tinto Iron $76 m The approval of the project was announced in
& Titanium's (Rio Tinto 100%) upgraded slag January 2004 and production is scheduled to
plant (UGS) from 250,000 tonnes per annum to start-up in early 2005.
325,000 tonnes per annum.
Diamonds - Construction at Diavik (Rio Tinto $265 m The project was approved in December 2004.
60%) of the A418 dike, and funding for further First production from the A418 open pit will
study of the viability of underground mining, be in 2008.
including the construction of an exploratory
decline.
Copper - Kennecott Utah Copper East 1 Pushback. $170 m The project was approved in February 2005.
The project extends the life of the open pit
to 2017 while retaining options for further
underground or open pit mining thereafter.
Divestments
The improved market conditions brought Rio Tinto a number of opportunities to
divest non-core businesses generating proceeds of over $1.5 billion.
Rio Tinto sold its holding in Freeport-McMoRan Copper & Gold Inc. (FCX) to FCX
for net consideration of $882 million. In addition to the holding in FCX, Rio
Tinto has a joint venture interest in production from the Grasberg mine, which
is managed by FCX. The sale of FCX shares does not affect the terms of the joint
venture, nor the management of the Grasberg mine.
In addition, Rio Tinto completed the sale of Fortaleza, (nickel, Brazil),
Zinkgruvan (zinc, Sweden), its remaining 20 per cent interest in Sepon (copper/
gold, Laos), its 49 per cent interest in Somincor (copper/tin, Portugal) and its
51 per cent interest in the Morro do Ouro mine (gold, Brazil).
The sale to Nippon Steel of an eight per cent interest in the Hail Creek Joint
Venture, and the increase in the combined share of the original participants,
Marubeni Coal and Sumisho Coal Development, by two per cent was completed in the
fourth quarter of the year. Rio Tinto will receive around $150 million for the
sale of these interests in the Hail Creek Joint Venture together with the sale
of a 47 per cent interest in the Beasley River iron ore deposit to its joint
venture partners in Robe River.
Price and exchange sensitivities
The following sensitivities give the estimated effect on net earnings assuming
that the price or exchange rate moved in isolation. The relationship between
currencies and commodity prices is a complex one and movements in exchange rates
can cause movements in commodity prices and vice versa. The exchange rate
sensitivities quoted below include the effect on operating costs of movements in
exchange rates but exclude the effect due to the revaluation of foreign currency
working capital. They should therefore be used with care.
Estimated effect on Rio Tinto's full year net earnings of:
Change in full year average US$m
Copper +/- 13.0c/lb 160
Gold +/-$41/oz 40
Aluminium +/-7.8c/lb 110
Australian dollar +/-7.3USc 190
Canadian dollar +/-7.7USc 45
South African rand +/- 0.7 Rand 20
International Financial Reporting Standards
Rio Tinto will be reporting its financial performance in accordance with
International Financial Reporting Standards (IFRS) starting with the interim
2005 results. The transition project is well advanced and Rio Tinto will meet
its reporting deadlines.
In the Rio Tinto 2004 half year report to shareholders, the main conceptual
differences, identified at that date, between UKGAAP and IFRS, insofar as Rio
Tinto is concerned, were explained. An updated version of that disclosure is
included on page 29 of this report. Interpretation of IFRS continues to evolve
but the matters described on page 29 remain the most significant issues for the
Group identified to date.
In early May 2005 full year and half year 2004 financial results under IFRS will
be released and the differences between these and the previously reported
results explained.
US GAAP Reconciliation
The Group has recently received a comment letter from the US Securities and
Exchange Commission (The SEC) relating to its 2003 Annual Report on Form 20-F.
The SEC reviews such filings as a matter of routine. The US GAAP reconciliation
has not been published in this report because the comments of the SEC are still
being considered by the company.
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Lisa Cullimore Ian Head
Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620
Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101
Investor Relations Investor Relations
Peter Cunningham Dave Skinner
Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628
Mobile: +44 (0) 7711 596 570 Mobile: +61 (0) 408 335 309
Richard Brimelow Susie Creswell
Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639
Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 418 933 792
Website: www.riotinto.com
Profit and loss account
Years ended 31 December
2004 2003
US$m US$m
Gross turnover (including share of joint ventures and associates) 14,135 11,755
Share of joint ventures' turnover (2,373) (1,820)
Share of associates' turnover (418) (707)
Consolidated turnover 11,344 9,228
Net operating costs (2004 includes exceptional charges of US$558 million) (9,622) (7,732)
Group operating profit 1,722 1,496
Share of operating profit of joint ventures 1,052 536
Share of operating profit of associates 156 234
Profit on disposal of interests in operations 920 126
Profit on ordinary activities before interest 3,850 2,392
Net interest payable (149) (206)
Amortisation of discount (105) (92)
Profit on ordinary activities before taxation 3,596 2,094
Taxation (2004 is reduced by a credit of US$97 million relating to exceptional items) (841) (567)
Profit on ordinary activities after taxation 2,755 1,527
Attributable to outside equity shareholders (2004 includes a credit of US$133 million
relating to exceptional charges) 58 (19)
Profit for the financial year (net earnings) 2,813 1,508
Dividends to shareholders (1,062) (882)
Retained profit for the year 1,751 626
Earnings per ordinary share 204.0c 109.5c
Adjusted earnings per ordinary share 161.0c 100.3c
Dividends per share to Rio Tinto shareholders 77.0c 64.0c
Diluted earnings per share figures are 0.3 US cents (2003: 0.2 US cents) lower
than the earnings per share figures above.
For the purpose of calculating earnings and adjusted earnings per share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the period was 1,379.2 million, being the average number of
Rio Tinto plc shares outstanding (1,067.4 million) plus the average number of
Rio Tinto Limited shares outstanding not held by Rio Tinto plc (311.8 million).
The results for both years relate wholly to continuing operations.
Profit is stated after exceptional items which are set out in the reconciliation
below.
2004 2003
US$m US$m
Profit for the financial year (net earnings) 2,813 1,508
Exceptional items impact on the above profit and loss account as follows:
Profit on disposal of interests in operations 920 126
Asset write downs and provision for contract obligation (558) -
Taxation 97 -
Attributable to outside equity interests 133 -
Net exceptional items 592 126
Adjusted earnings 2,221 1,382
Cash flow statement
Years ended 31 December
2004 2003
US$m US$m
Cash flow from operating activities (see below) 3,621 2,888
Dividends from joint ventures 748 470
Dividends from associates 80 128
Total cash flow from operations 4,449 3,486
Interest received 23 30
Interest paid (168) (231)
Dividends paid to outside shareholders (61) (76)
Returns on investment and servicing of finance (206) (277)
Taxation (875) (917)
Purchase of property, plant and equipment (2,164) (1,533)
Funding of Group share of joint ventures' and associates' capital expenditure (33) (94)
Repayments from/(other funding of) joint ventures and associates 15 (18)
Exploration and evaluation expenditure (193) (130)
Sale of property, plant and equipment 40 19
Sales less purchases of other investments (2004 includes proceeds on disposal of
operations of US$110m) 250 83
Capital expenditure and financial investment (2,085) (1,673)
Disposals less acquisitions 1,511 405
Equity dividends paid to Rio Tinto shareholders (906) (833)
Cash inflow before management of liquid resources
and financing 1,888 191
Net cash inflow/(outflow) from management of liquid resources 90 (105)
Ordinary shares in Rio Tinto issued for cash 26 25
Ordinary shares in subsidiaries issued to outside shareholders 7 8
Loans repaid net of amounts received (1,833) (202)
Management of liquid resources and financing (1,710) (274)
Increase/(decrease) in cash 178 (83)
Cash flow from operating activities
Group operating profit 1,722 1,496
Asset write downs and provision for contract obligation 558 -
Depreciation and amortisation 1,204 1,006
Exploration and evaluation charged against profit 187 127
Provisions 147 154
Utilisation of provisions (186) (159)
Change in inventories (179) (43)
Change in accounts receivable and prepayments (48) 154
Change in accounts payable and accruals 168 66
Other items 48 87
Cash flow from operating activities 3,621 2,888
Net debt of US$3,751 million at 31 December 2004 compares with US$5,646 million
at 31 December 2003. The decrease of US$1,895 million comprises the cash inflow
before management of liquid resources and financing of US$1,888 million and
other items of US$7 million.
Proceeds relating to the profit on disposal of operations shown in the profit
and loss account include disposals of US$1,511 million and sales of other
investments of US$110 million.
Balance sheet
At 31 December
2004 2003 2004 2003
A$m A$m US$m US$m
Intangible fixed assets
1,463 1,583 Goodwill 1,139 1,185
125 92 Exploration and evaluation 97 69
1,588 1,675 1,236 1,254
Tangible fixed assets
21,332 20,294 Property, plant and equipment 16,605 15,196
Investments
4,464 4,318 Share of gross assets of joint ventures 3,475 3,233
(1,340) (1,349) Share of gross liabilities of joint ventures (1,043) (1,010)
3,124 2,969 2,432 2,223
495 690 Investments in associates/other investments 385 517
3,619 3,659 Total investments 2,817 2,740
26,539 25,628 Total fixed assets 20,658 19,190
Current assets
2,603 2,381 Inventories 2,026 1,783
Accounts receivable and prepayments
2,214 2,236 Falling due within one year 1,723 1,674
1,074 1,080 Falling due after more than one year 836 809
3,288 3,316 2,559 2,483
100 307 Investments 78 230
501 528 Cash 390 395
6,492 6,532 Total current assets 5,053 4,891
Current liabilities
(1,035) (2,930) Short term borrowings (806) (2,194)
(3,326) (2,858) Accounts payable and accruals (2,589) (2,140)
(4,361) (5,788) Total current liabilities (3,395) (4,334)
2,131 744 Net current assets 1,658 557
28,670 26,372 Total assets less current liabilities 22,316 19,747
Liabilities due after one year
(4,287) (5,140) Medium and long term borrowings (3,337) (3,849)
(515) (430) Accounts payable (401) (322)
(6,498) (6,058) Provisions for liabilities and charges (5,058) (4,536)
(1,203) (1,340) Outside shareholders' interests (equity) (936) (1,003)
16,167 13,404 12,584 10,037
Capital and reserves
Share capital
199 207 - Rio Tinto plc 155 155
1,456 1,449 - Rio Tinto Limited (excluding Rio Tinto plc interest) 1,133 1,085
2,120 2,176 Share premium account 1,650 1,629
419 446 Other reserves 326 334
11,973 9,126 Profit and loss account 9,320 6,834
16,167 13,404 Equity shareholders' funds 12,584 10,037
At 31 December 2004, Rio Tinto plc had 1,068.0 million ordinary shares in issue
and Rio Tinto Limited had 311.9 million shares in issue, excluding those held by
Rio Tinto plc.
At 31 December 2004, net tangible assets per share amounted to US$8.22 (31
December 2003: US$6.38).
Current asset investments include US$76 million (31 December 2003: US$228
million) relating to US treasury bills, which are held as security for the
deferred consideration for assets acquired during 2003.
Reconciliation with Australian GAAP
At 31 December
2004 2003 2004 2003
A$m A$m US$m US$m
3,830 2,327 Net earnings under UK GAAP 2,813 1,508
Increase/(decrease) net of tax in respect of:
(189) (253) Goodwill amortisation (139) (164)
135 - Profit on sale of associated company 99 -
135 - Contributions to fixed asset additions 99 -
(31) (8) Taxation (23) (5)
- 11 Other - 7
Net earnings attributable to members under
3,880 2,077 Australian GAAP 2,849 1,346
281.3c 150.8c Earnings per ordinary share under Australian GAAP 206.6c 97.7c
Diluted earnings per share under Australian GAAP are 0.3 US cents (2003: 0.2 US
cents) less than the above earnings per share figures.
2004 2003 2004 2003
A$m A$m US$m US$m
16,167 13,404 Shareholders' funds under UK GAAP 12,584 10,037
Increase/(decrease) net of tax in respect of:
772 1,165 Goodwill 601 872
59 92 Taxation 46 69
804 626 Dividends 626 469
135 - Contributions to fixed asset additions 105 -
(33) (32) Other (26) (24)
17,904 15,255 Shareholders' funds under Australian GAAP 13,936 11,423
The Group's financial statements have been prepared in accordance with UK GAAP,
which differs in certain respects from Australian GAAP. These differences
relate principally to the following items, and the effect of each of the
adjustments to net earnings and shareholders' funds that would be required under
Australian GAAP is set out above.
Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchased goodwill
on acquisitions directly against reserves. Under Australian GAAP, goodwill is
capitalised and amortised by charges against income over the period during which
it is expected to be of benefit, subject to a maximum of 20 years. Goodwill
previously written off directly to reserves in the UK GAAP accounts has been
reinstated and amortised for the purpose of the reconciliation statements.
For acquisitions in 1998 and subsequent years, goodwill is capitalised under UK
GAAP, in accordance with FRS 10. Adjustments are required for Australian GAAP
purposes where such capitalised goodwill is amortised over periods exceeding 20
years in the UK GAAP accounts.
Profit on sale of operations
Under UK GAAP, goodwill previously written off to reserves is reinstated for the
purpose of calculating profit on the sale of an operation. Under Australian
GAAP, the equivalent goodwill is capitalised and is subject to amortisation.
The profit on sale of operations adjustment under Australian GAAP reflects the
lower book value of operations sold under Australian GAAP compared to UK GAAP,
which results from the above amortisation.
Contributions to fixed asset additions
Under UK GAAP the Group applies Statement of Standard Accounting Practice 4,
Accounting for government grants to contributions made by governments to the
acquisition of fixed assets. Such contributions are deferred on the balance
sheet and credited to the profit and loss account over the expected useful
economic life of the fixed assets to which they relate. Under Australian GAAP,
the Group applies AASB 1004, Revenue and UIG 11 Accounting for contributions of,
or contributions for the acquisition of non-current assets, which requires such
contributions be recognised immediately in the profit and loss account.
Taxation
Under UK GAAP, provision for taxes arising on remittances of earnings can only
be made if the dividends have been accrued or if there is a binding agreement
for the distribution of the earnings. Under Australian GAAP, provision must be
made for tax arising on expected future remittances of past earnings.
Under UK GAAP, tax benefits associated with goodwill charged directly to
reserves, in 1997 and previous years, must be accumulated in the deferred tax
provision. This means that the tax benefits are not included in earnings until
the related goodwill is charged through the profit and loss account on disposal
or closure. For Australian GAAP, no provision is required for such deferred tax
because the goodwill that gave rise to these tax benefits was capitalised and
gives rise to amortisation charges against profit.
Dividends
Under UK GAAP, ordinary dividends are recognised in the financial year in
respect of which they are paid. Under Australian GAAP, with effect from 1
January 2003, such dividends are not recognised until they are declared,
determined or publicly recommended by the Board of directors. Prior to 1
January 2003, Australian GAAP was consistent with UK GAAP.
Exceptional items
Earnings under UK GAAP stated above include exceptional net gains of US$592
million (2003 US$126 million) relating to profits on disposal of operations less
asset write-downs and provision for contract obligation.
Reconciliation of movements in shareholders' funds
2004 2003
US$m US$m
Profit for the year 2,813 1,508
Dividends (1,062) (882)
1,751 626
Adjustment on currency translation 542 1,924
Goodwill written back on disposal of equity accounted company 228 -
Share capital issued 26 25
2,547 2,575
Opening shareholders' funds 10,037 7,462
Closing shareholders' funds 12,584 10,037
Prima facie tax reconciliation
2004 2003
US$m US$m
Profit on ordinary activities before taxation 3,596 2,094
Prima facie tax at UK and Australian rate of 30% 1,079 628
Impact of exceptional items (94) (38)
Other permanent differences
Other tax rates applicable outside the UK and Australia 93 59
Permanently disallowed amortisation/depreciation 55 53
Research, development and other investment allowances (8) (5)
Resource depletion allowances (87) (54)
Other (30) (24)
23 29
Other deferral of taxation
Capital allowances in excess of depreciation charges (89) (48)
Other timing differences 34 14
Total timing differences related to the current year (55) (34)
Current taxation charge for the year 953 585
Deferred tax recognised on timing differences 55 34
Deferred tax impact of exceptional items (112) -
Other deferred tax items (55) (52)
Total taxation charge for the year 841 567
Exploration and evaluation properties
2004 2003
US$m US$m
At cost less amounts written off
At 1 January 834 694
Adjustment on currency translation 23 119
Expenditure in the year 193 130
Charged against profit for the year (51) (47)
Disposals, transfers and other movements (39) (62)
At 31 December 960 834
Provision
At 1 January (765) (637)
Adjustment on currency translation (20) (104)
Charged against profit for the year (136) (80)
Disposals, transfers and other movements 58 56
At 31 December (863) (765)
Net balance sheet amount 97 69
Product analysis
2004 2003 2004 2003
% % US$m US$m
Gross turnover
15.7 12.7 Copper 2,225 1,495
4.5 9.1 Gold (all sources) 634 1,068
18.6 18.4 Iron ore 2,636 2,165
18.7 18.1 Coal 2,644 2,125
16.8 15.7 Aluminium 2,374 1,847
14.9 15.7 Industrial minerals 2,106 1,849
5.3 4.7 Diamonds 744 556
5.5 5.6 Other products 772 650
100.0 100.0 14,135 11,755
Net earnings
33.8 27.1 Copper, gold and by-products 861 429
22.4 31.6 Iron ore 569 500
13.8 10.3 Coal 350 163
13.1 11.9 Aluminium 334 189
9.3 10.0 Industrial minerals 236 159
6.6 7.0 Diamonds 169 111
1.0 2.1 Other products 25 33
100.0 100.0 2,544 1,584
Exploration and evaluation (152) (98)
Net interest (57) (59)
Other items (114) (45)
2,221 1,382
Exceptional items 592 126
2,813 1,508
Geographical analysis (by country of origin)
2004 2003 2004 2003
% % US$m US$m
Gross turnover
32.0 30.3 North America 4,522 3,567
46.7 43.8 Australia and New Zealand 6,603 5,152
8.0 5.8 South America 1,130 682
5.7 5.6 Africa 812 662
2.2 8.8 Indonesia 308 1,037
5.4 5.7 Europe and other countries 760 655
100.0 100.0 14,135 11,755
Net earnings
32.0 25.2 North America 730 363
48.7 52.3 Australia and New Zealand 1,109 754
16.8 10.8 South America 382 156
0.7 0.8 Africa 15 12
2.1 12.6 Indonesia 48 181
(0.3) (1.7) Europe and other countries (6) (25)
100.0 100.0 2,278 1,441
Net interest (57) (59)
2,221 1,382
Exceptional items 592 126
2,813 1,508
The above analysis includes Rio Tinto's share of the results of joint ventures
and associates including interest.
The amortisation of discount is included in the applicable product category and
geographical area. All other financing costs of subsidiaries are included in
'Net interest'.
Geographical analysis (by destination)
2004 2003 2004 2003
% % US$m US$m
Gross turnover
24.9 25.7 North America 3,525 3,024
21.5 23.3 Europe 3,038 2,742
17.5 18.0 Japan 2,476 2,119
22.4 21.5 Other Asia 3,167 2,527
8.4 7.2 Australia and New Zealand 1,191 845
5.3 4.3 Other 738 498
100.0 100.0 14,135 11,755
Accounting policies
The financial information included in this report has been prepared in
accordance with United Kingdom Accounting Standards and an Order under section
340 of the Australian Corporations Act 2001 issued by the Australian Securities
and Investments Commission on 21 July 2003. The UK GAAP financial information
has been drawn up on the basis of accounting policies consistent with those
applied in the financial statements for the year to 31 December 2003.
Financial information
This preliminary announcement does not constitute the Group's full financial
statements for 2004, which will be approved by the Board and reported on by the
auditors on 25 February 2005 and subsequently filed with the Registrar of
Companies and the Australian Securities and Investments Commission. Accordingly,
the financial information for 2004 is unaudited.
The preliminary announcement contains financial information for 2003 which has
been extracted from the audited financial statements for that year. The accounts
of Rio Tinto plc and Rio Tinto Limited for 2003 were the subject of unqualified
audit reports and have been delivered to the Registrar of Companies in the
United Kingdom and the Australian Securities and Investments Commission,
respectively. The auditors' report on the financial statements for the year
ended 31 December 2003 did not contain statements under section 237(2) of the
United Kingdom Companies Act 1985 (regarding adequacy of accounting records and
returns), or under section 237(3) (regarding provision of necessary information
and explanations).
Notes to financial information by business unit (Pages 7 and 8)
(a) Gross turnover includes 100 per cent of subsidiaries' turnover and the
Group's share of the turnover of joint ventures and associates.
(b) EBITDA of subsidiaries, joint ventures and associates represents profit
before: exceptional items, tax, net interest payable, depreciation and
amortisation, that is attributable to the Rio Tinto Group.
(c) Net earnings represent after tax earnings attributable to the Rio Tinto
Group. Earnings of subsidiaries are stated before interest charges but
after the amortisation of the discount related to provisions. Earnings
attributable to joint ventures and associates include interest charges.
(d) During June 2004 Rio Tinto sold its interests in Somincor and Zinkgruvan.
During 2003 Rio Tinto sold its interests in Kaltim Prima Coal, Alumbrera
and Peak.
(e) Includes Rio Tinto's interest in Anglesey Aluminium (51 per cent) and
Comalco (100 per cent).
(f) On 30 March 2004 Rio Tinto sold its 13.1 per cent shareholding in
Freeport-McMoRan Copper & Gold Inc. The sale of the shares does not affect
the terms of the joint venture referred to below.
(g) Under the terms of a joint venture agreement, Rio Tinto is entitled to 40
per cent of additional material mined as a consequence of expansions and
developments of the Grasberg facilities since 1998.
(h) Rio Tinto sold its 99.9 per cent interest in Fortaleza on 1 January 2004,
and its 51 per cent interest in Morro do Ouro on 31 December 2004.
(i) Capital expenditure comprises the net cash outflow on purchases less
disposals of property, plant and equipment. The details provided include
100 per cent of subsidiaries' capital expenditure and Rio Tinto's share of
the capital expenditure of joint ventures and associates. Amounts relating
to joint ventures and associates not specifically funded by Rio Tinto are
deducted before arriving at the total capital expenditure for the Group.
(j) Depreciation and amortisation figures include 100 per cent of subsidiaries'
depreciation and goodwill amortisation and include Rio Tinto's share of the
depreciation and goodwill amortisation of joint ventures and associates.
Amounts relating to joint ventures and associates are deducted before
arriving at the total depreciation and amortisation charge.
(k) Operating assets of subsidiaries comprise net assets before deducting net
debt, less outside shareholders' interests which are calculated by
reference to the net assets of the relevant companies (ie net of such
companies' debt). For joint ventures and associates Rio Tinto's net
investment is shown. For joint ventures and associates shown in the
Financial Information by Business Unit on pages 7 and 8, Rio Tinto's shares
of operating assets, defined as for subsidiaries, are as follows: Escondida
US$948 million (2003: US$905 million), Grasberg joint venture US$428
million (2003: US$417 million).
(l) Business units have been classified in the analysis on pages 7 and 8
according to the Group's current management structure. Generally, this
structure has regard to the primary product of each business unit but there
are exceptions. For example, the Copper group includes certain gold
operations. This summary differs, therefore, from the Product analysis in
which the contributions of individual business units are attributed to
several products as appropriate.
Summary financial data in Australian dollars, Sterling and US dollars
2004 2003 2004 2003 2004 2003
A$m A$m £m £m US$m US$m
19,248 18,143 7,722 7,198 Gross turnover (including share of 14,135 11,755
joint ventures and associates)
4,897 3,232 1,964 1,282 Profit on ordinary activities before taxation 3,596 2,094
3,024 2,133 1,213 846 Adjusted earnings* 2,221 1,382
3,830 2,327 1,537 923 Profit for the financial year (net earnings) 2,813 1,508
277.8c 169.0c 111.4p 67.1p Earnings per ordinary share 204.0c 109.5c
219.3c 154.8c 88.0p 61.4p Adjusted earnings per ordinary share* 161.0c 100.3c
Dividends per share to Rio Tinto shareholders
41.48p 37.13p -Rio Tinto plc 77.0c 64.0c
103.82c 89.70c -Rio Tinto Limited 77.0c 64.0c
6,058 5,380 2,430 2,135 Total cash flow from operations 4,449 3,486
(2,839) (2,582) (1,139) (1,024) Capital expenditure and financial investment (2,085) (1,673)
(4,819) (7,540) (1,944) (3,170) Net debt (3,751) (5,646)
16,167 13,404 6,520 5,636 Equity shareholders' funds 12,584 10,037
Adjusted earnings exclude exceptional items of US$592 million (2003: US$126
million)
The financial data above have been extracted from the primary financial
statements set out on pages 20 to 22. The Australian dollar and Sterling
amounts are based on the US dollar amounts, retranslated at average or closing
rates as appropriate. For further information on these exchange rates, see
below.
Metal prices and exchange rates
Years ended 31 December
2004 2003 Change
Metal prices - average for the period
Copper - US cents/lb 130c 80c 63%
Aluminium - US cents/lb 78c 65c 20%
Gold - US$/troy oz US$409 US$363 13%
Average exchange rates in US$
Sterling 1.83 1.63 12%
Australian dollar 0.73 0.65 12%
Canadian dollar 0.77 0.71 8%
South African rand 0.155 0.132 17%
Period end exchange rates in US$
Sterling 1.93 1.78 8%
Australian dollar 0.78 0.75 4%
Canadian dollar 0.83 0.77 8%
South African rand 0.177 0.151 17%
The Australian dollar exchange rates, given above, are based on the Hedge
Settlement Rate set by the Australian Financial Markets Association.
Availability of this report
This report is available on the Rio Tinto website.
International financial reporting standards
The Group will be preparing its financial statements for the 2005 half year and
subsequent reporting periods in accordance with International Financial
Reporting Standards (IFRS). The main conceptual differences identified to date
between UK GAAP and IFRS, insofar as Rio Tinto is concerned, are likely to be:
Foreign exchange gains/(losses) on debt
The Group finances its operations primarily through US dollar debt, a
significant proportion of which is located in operations whose functional
currency is not the US dollar. Under UK GAAP, US dollar debt is dealt with in
the context of the currency status of the Group as a whole, and exchange
differences reported by these operations are adjusted through reserves. IFRS
permits these exchange gains and losses to be taken to reserves only to the
extent that the US dollar debt is an effective hedge of US dollar assets or, in
the case of loans between Group companies, meets the net investment criteria set
out in IAS 21, The Effects of Changes in Foreign Exchange Rates. Exchange gains
and losses that do not meet these criteria will therefore be recorded in the
Group IFRS profit and loss account, which will continue to be expressed in US
dollars; shareholders' funds will be unaffected by this reclassification. Some
indication of the reclassification's impact on the 2003 IFRS profit and loss
account may be obtained from the disclosure of 'Exchange differences included in
earnings under US GAAP' on page 137 of the 2003 financial statements.
Derivatives not qualifying for hedge accounting under IFRS
The Group is party to derivative contracts in respect of some of its future
transactions in order to hedge its exposure to fluctuations in exchange rates
against the US dollar. Under UK GAAP, these contracts are accounted for as
hedges: gains and losses are deferred and subsequently recognised when the
hedged transaction occurs. However, certain of the Group's derivative contracts
will not qualify for hedge accounting under IFRS because the hedge is not
located in the entity with the exposure. These contracts will be
marked-to-market under IFRS, thereby giving rise to charges or credits to the
profit and loss account in periods before the hedged transaction is recognised.
Derivatives qualifying for hedge accounting under IFRS
Unrealised gains and losses on derivatives hedging future transactions are not
shown on the balance sheet under UK GAAP. Under IAS 39, 'Financial Instruments:
Recognition and measurement', all derivatives will be marked-to-market and
recognised on the balance sheet. For cashflow hedges where derivatives provide
an effective hedge against forecast transactions and firm commitments,
unrealised gains and losses will be recorded on the balance sheet and deferred
in shareholders' funds. When realised, these gains and losses will be recycled
to the profit and loss account, or set against the cost of the relevant fixed
asset. Unrealised gains and losses on fair value hedges will be recognised in
the profit and loss account and offset against the corresponding gains and
losses on the hedged item.
Post retirement benefits
For UK GAAP, the Group applies SSAP 24, Accounting for Pension Costs. Post
retirement benefit surpluses/deficits are spread on a straight line basis over
the expected average remaining service lives of relevant current employees. The
basis of calculating the surplus or deficit under IAS 19 differs from SSAP 24.
Under the current IAS 19, Employee Benefits, as amended in 2004, there are three
alternative ways in which the surplus or deficit can be recognised. It is
probable that the Group will choose to recognise actuarial gains and losses
directly in shareholders' funds via the Statement of Recognised Income and
Expense. This treatment is similar to the new UK standard FRS 17, Retirement
Benefits. The FRS 17 disclosures included on pages 125 to 128 of the 2003 Group
accounts therefore give an indication of the effect of adopting this alternative
on the Group's 2003 profit and loss account. IAS 19 as amended in 2004 is yet
to be endorsed by the European Union. However, we are assuming that this
standard will be endorsed before 31 December 2005.
Deferred tax
UK GAAP requires the provision of deferred tax on fair value adjustments to
monetary items, and downward fair value adjustments to non-monetary items. IFRS
requires deferred tax to be recognised on all fair value adjustments, other than
those recorded as goodwill, including those on non-monetary items. For future
acquisitions, this will generally result in an additional provision for deferred
tax with a corresponding increase in the amounts attributed to the acquired
assets and/or goodwill. However, on first adoption, IFRS permits the
presentation of deferred tax provisions relating to acquisitions in previous
periods as either a reduction in shareholders' funds or an increase in the
carrying value of acquired assets.
Under IFRS, full provision must be made for tax arising on unremitted earnings
from subsidiaries, joint ventures and associated companies, except to the extent
that the Group can control the timing of remittances and remittance is not
probable in the foreseeable future. Under UK GAAP, tax is only provided on
unremitted earnings to the extent that dividends have been accrued or if there
is a binding agreement for the distribution of earnings at the reporting date.
Joint ventures
The basis for determining whether joint ventures are accounted for using the
gross equity method, or included in the financial statements on a line-by-line
basis in proportion to the investor's interest ('proportional consolidation'),
differs under IFRS from UK GAAP. As a result, certain joint ventures which were
previously accounted for using the equity method will be proportionally
consolidated under IFRS. In addition there are a number of investments,
proportionally consolidated under UK GAAP, which may be accounted for using
either proportional consolidation or the equity method under IFRS. The most
appropriate presentation for these investments is currently being considered.
There will be no effect on net earnings or shareholders' funds as a result of
this reclassification.
Dividends declared after reporting date
Under IFRS, dividends that do not represent a present obligation at the
reporting date are not accrued for in the balance sheet. Hence, the companies'
proposed dividends will not be recognised in the Group accounts until the period
in which they are declared payable by the directors.
Non amortisation of goodwill
The systematic amortisation of goodwill under UK GAAP, by an annual charge to
the profit and loss account, will cease under IFRS, to be replaced with annual
impairment reviews. Due to the finite life of mining assets, impairment charges
relating to goodwill are expected to arise in future reporting periods. Charges
for impairment of goodwill are likely to fluctuate more between periods than UK
GAAP goodwill amortisation charges.
Impairment
There are certain differences between IFRS and UK GAAP in the basis for
quantifying impairment charges against fixed assets. These differences may
impact on the impairment reviews previously conducted under UK GAAP.
Share based payments
Currently under UK GAAP, no cost is recognised in respect of share based
payments provided that, where the strike price is below the market price at the
date of issue, the option scheme applies to all relevant employees and the
intention is to satisfy the exercise of options by the issue of new shares. IFRS
requires the economic cost of all share based payments to employees of the Group
to be recognised by reference to fair value on the grant date, and charged to
the profit and loss account over the expected vesting period.
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